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Viewpoint: Big, Small Companies Can Help Each Other

In the era of “too big to fail,” many people are surprised to learn that small businesses are the largest employers in the U.S. They are also the unheralded utility players of aerospace. They provide niche products, specialized services, replacement parts, low-cost commodities and unique technologies that keep this industry going. Small businesses need to succeed for aerospace to grow. But they also must raise their games. With the overwhelming challenges ahead, now is the time for small businesses to improve their planning and processes—and for industry leaders to incorporate small businesses into their strategic plans.

There are countless challenges for small businesses in this environment. The impacts of sequestration and health-care reform, the fragility of business aviation, access to capital and MRO pricing pressures are just a few. All this increases pressure to manage cash flow, maximize liquidity, continue innovation, acquire the right talent and partner with suppliers prepared to meet these challenges. This is nothing new for small or large businesses.

Having been a manager in both large corporations and small businesses, I can point to one important difference: small business’s margin for error is miniscule in addressing these challenges. Healthy, large corporations often rely on robust balance sheets and a fleet of fielded platforms or systems to navigate uncertainty. The use of mergers and acquisitions is often another growth tool at their disposal. This is not usually the situation for small businesses. Most have a handful of key employees, critical contracts, customers or core products or services that drive them. They can sink with one bad hire or one poorly executed contract.

So, how can small businesses improve their chances for success? Management teams might take a page from their big-business counterparts by spending more time on planning, processes and people. Now, I am not suggesting that small businesses hire an army of Six Sigma black belts. However, small businesses can benefit from using some of big companies’ basic process tools, such as succession-planning, goal-setting, supplier-development and financial-forecasting—all of which can be implemented with a minimal investment of time and effort.

First, small-business leaders should have succession plans and incentives for key employees. They should ask themselves: Are junior employees being mentored by key employees? Is enough time dedicated to screening and training new hires? Are there evaluation and promotion opportunities? Are incentives aligned with company performance? Are goals and objectives clear to everyone?

Many small businesses do not have basic processes for evaluating supplier performance. Management should ask itself: Is there a written record of supplier performance? Are there goals and metrics? Are parts on-time, on cost and completed to specs? Can you even reach them on the phone? If not, it may be time to look for other options.

Finally, and most importantly, every small business should perform some short- and long-term financial planning. Cash-flow projections for the next 12 weeks can enable the company to anticipate short-term peaks and valleys in liquidity. Ultimately, long-term financial projections will allow small businesses—and their financial partners—to have more confidence to invest in new projects and products. In this environment, where payments and contracts can be unpredictable, investing at the wrong time can be just as devastating as investing in the wrong project.

From a strategy perspective, financial planning is the key to product and service diversification. If a business has the liquidity, this is an excellent time to invest in related products or services to balance its core business and cushion the turbulence ahead. If a small business does not have the liquidity needed, it should take a closer look at the profitability of products and at its current debt structure. In this environment, there is no room for negative-margin offerings or high-interest loans.

Even with better planning and tools, small businesses need industry partners. Aerospace and defense market leaders should consider broader investments and partnerships with small businesses. They should establish transparent marketplaces for small businesses, extend joint development opportunities and increase access to capital. Instead of moving to low-wage regions overseas, the majors should consider outsourcing to small businesses at home. Small businesses must continue to improve and generate market value, but large companies also need to integrate small-business concepts into their strategic plans. Ultimately, that will nurture a stronger, more competitive supply base for everyone.

[Scott L. Schein is president of United Equipment Corp., a small aerospace business in Richmond, Va., that supplies replacement windows for aircraft doors, airframe components and specialty materials for military aircraft. Credit: United Equipment Corp.]